FOR ALL THINGS capitalist in the U.S., auto dealers have a strong safeguard cushioned by an array of state-level legislations, including the one that prohibits manufacturers from terminating franchises at free will unless they prove they have a “good cause” to do so. The dichotomic interplay of free enterprise and state-protected commerce makes the 18,000 new-car dealerships, under the ambit of the National Automobile Dealers Association (NADA), a strong lobby that automakers cannot roughshod over.

Hence, it’s not surprising to see the top 20 dealers command $100 billion in combined market cap in the U.S., where 15.6 million new vehicles were sold in 2023, 12% higher over CY22, marking the biggest increase in more than a decade. While the top four are predominantly online used-car dealers, the 300-outlet strong AutoNation is the biggest pure-play brick-and-mortar retailer with a market value of $5.87 billion. The company ranks 151st on the global Fortune 500 list with sales of $20 billion and $800 million in profits (9MCY23).

Now contrast that with India, a so-called mixed economy, where the Federation of Automobile Dealers Associations represents the interest of over 15,000 dealers but lacks the state-level laws that their counterparts in the U.S. enjoy. In other words, auto dealers are more at the mercy of the OEMs who can throw out a non-performing or a weak dealer-cum-service franchisee without worrying about any legal consequences.

In such a landscape, the first car dealer to get listed in the ’90s was Sai Service Station. In the 2008 meltdown, the Kalmadi family delisted the stock by buying out public shareholders at ₹220 a share. Though since then the auto industry has only grown in heft, the IL&FS-led shadow banking crisis in mid-2018 and the pandemic saw over 300 dealers shutting shop. That’s not surprising considering the super-slim profit margins of 2-3% in the business.

In short, car dealers did not exactly catch the fancy of the Street until Landmark Cars made its stock market debut with a ₹552 crore IPO in December 2022. Though the pure-play passenger car dealer had a dismal debut, listing at a 7% discount to its issue price of ₹506, it is now trading at ₹734, a 45% premium over its issue price and a market cap of ₹3,365 crore. Before Landmark, used-car dealer Car Trade Tech went public in August 2021 with a ₹3,000 crore IPO, but the stock has more than halved to ₹691 from its issue price of ₹1,618, pulling down the market cap to ₹3,238 crore from ₹7,233 crore. Yet another automotive dealer waiting in the wings to get listed is the Kerala-based Popular Vehicles & Services, a prominent Maruti car retailer.

Given that three listed passenger vehicle makers (Maruti Suzuki, Tata Motors and M&M), command ₹8.76 lakh crore in market cap, 113 listed auto ancillary companies are worth ₹6.48 lakh crore, the only player in the value chain that is not adequately represented on the Street is the car dealer. Now what makes Landmark stand out is that it is the only play on the premiumisation narrative in the auto industry and, more specifically, a proxy to the growth story of luxury carmakers Mercedes-Benz, Honda, Jeep, Volkswagen, BYD and the likes. In 2023, luxury vehicle sales rose 21% to 46,000-47,000 units and 35% over 2019 numbers, thanks to higher disposable incomes and changing consumer preferences. Mercedes-Benz, in fact, clocked its best-ever sales at 17,408 units, 10% higher YoY.

Making Its Mark

Not surprising that Landmark Cars, the preferred dealer (No. 1) of the names mentioned, barring Renault (No. 3), tops this year’s Fortune India’s The Next 500 list with a total income of ₹3,510 crore (FY23). Though founder and chairman Sanjay Thakker is happy to take the top honours, he tells Fortune India, “We would have been in the Fortune 500 India list, if you had considered our proforma revenues (₹3,850 crore) for the year,” says the 59-year-old sitting out his modest showroom-cum-office at Worli. While the cut-off of the 500th ranked company in Fortune India 500 list for 2023 was ₹3,511 crore, Landmark would have ranked 477th on the list had it made the cut based on its proforma revenue.

The reason Thakker makes the point is that though Landmark is the numero uno dealer for Merc, but ever since the German luxury carmaker changed it sales strategy globally in 2021 by billing the customer directly, its vehicle sales no longer reflect in Landmark’s books, barring the commission paid. “There is a common price across India as it brings transparency to customers and a wider choice of inventory. If there is a discount or an offer, it’s common across the dealer network. People don’t feel it’s a discounted brand. So, it’s a win-win for dealers, manufacturers, and the customer,” says Thakker. The selling and customer experience will be the same as car dealers such as Landmark will still be the touchpoint for prospective buyers and customers. “We do the registration, and financing if need be. We accessorise the car and deliver it. Except that it doesn’t touch my books. I just get a commission at the end of the month,” explains Thakker.

In the conventional automotive retail model, manufacturers (OEMs) sell cars to dealers, who must secure loans to purchase this inventory, accruing significant interest. This system forces dealers to demonstrate high creditworthiness, often pledging personal assets for financial backing. Consequently, there’s a pressing need to sell off inventory, frequently with hefty discounts. This practice not only squeezes profit margins but also encourages less savoury tactics such as handling charges, which is passed on to consumers. “We felt that the only way for a luxury brand to command a premium in the market is when dealers compete on experience and not on discount. So, that was a trigger for us to change the model,” reveals Santosh Iyer, MD & CEO, Mercedes-Benz India.

Despite the change in strategy, Merc’s association with Landmark is enduring. “In 2009, Sanjay was looking at himself taking the role of an investor and not as an operations guy running the business. Given that he was professionalising his journey we took that leap of faith,” says Iyer. The leap of faith has done wonders as the luxury brand has stitched a mutually beneficial relationship with Landmark, operating 21 Merc outlets and on course to open two more.

Interestingly, Thakker’s foray into the dealership began with Honda in 1998 when his close friend got the deal and onboarded Thakker into the venture. Though his friend’s untimely death cut their entrepreneurial foray short, Thakker kept the venture going. But the foundational strategy of the business is what helped Landmark differentiate itself. For starters, a decision was made not to hire any seasoned industry hands and, instead, Landmark chose to groom youngsters with fire in their belly. “We hired people in their late ’20s-early ’30s and those who joined me during 1998-2000 are today the core of Landmark’s senior management,” says Thakker, who hails from South Mumbai, a place he calls home.

Little did Thakker know that a journey that would begin with the first outlet of Honda in Ahmedabad would culminate into the bedrock of Landmark’s evolution over the subsequent decade. “Today, most of my senior management folks have ingrained the Honda philosophy, which is basically the Japanese way of doing things. It’s like the finishing school of how to get the basics and processes right and that sets the benchmark for Landmark to grow its business,” says Thakker.

During the initial decade, Landmark worked with only Honda and till date remains the preferred dealer in the Japanese car brand’s network with its 21 outlets. “Landmark has grown with us in our India journey and what’s unique about Thakker is the way he has professionalised the management structure, which is very rare among dealerships. He has managed to get the right mix of both retail and OEM talent,” says Kunal Behl, vice president, marketing & sales, Honda Cars India, which sold over 84,000 cars last year.

Subjective as it seems, governance standard is something that Thakker imbibed almost instinctively. “At the outset, it was decided no personal expenses will be booked in the business,” mentions Thakker. For instance, on festive occasions when it is customary for the owner’s family to visit showrooms, any associated expenses would be paid out of Thakker’s personal account. Similarly, in an owner-driven set-up it would have been easy for the promoter to create a separate entity to make the most of the ancillary business that comes with a dealership. But car insurance business is done within the listed company itself. The only insurance venture that Thakker has personally invested is in (Landmark Insurance Brokers). “It’s a separate business with a separate set of shareholders and engages in life, health, and general insurance. There is some amount of vehicle insurance business, but it’s not engaged with the listed entity. I am clear about building an institution 25-30 years out as I am not in it for the money,” says Thakker, whose pursuit for a high standard of integrity and excellence could possibly be tied up down to his upbringing in an illustrious family. For instance, Sanjay’s paternal grandfather was in the foodgrains business, while his maternal grandfather, Sheth Shoorji Vallabhdas, was both a well-known Gandhian and a businessman with interests in shipping and textiles. In fact, a road in the Fort area of Mumbai is named after his maternal grandfather. Also, Sanjay’s brother, Udayan, is a well-known Sahitya Akademi Award winning Gujarati poet.

Though Thakker’s forefathers had shifted from Gujarat to Mumbai, the family had inherited some properties, yet Landmark Cars owns only two outlets, the first one that it opened in Ahmedabad and the second one in Kolkata. “In our business, to own real estate is suicidal as buying vast tracts of land would suck in huge capital given that showroom and service shop requirement are becoming huge. In the event of the business faltering in a particular geography, you cannot just fold shop and move out. I have seen enough dealers go bust trying to stick on to the property by paying EMI,” says Thakker. As a result, barring two, 115 of Landmark outlets operate out of rented properties. “When bankers nudge me to buy properties to grow, my only question to them is that if you are so convinced why are branch premises on lease?” says Thakker with a grin.

Not surprising, a financially prudent approach, ownership separation, and a sunrise sector got PE major, TPG, knocking on Landmark’s doors in 2015. The conversation was easy as Manish Chokhani, chairman of TPG, was an old friend of Thakker. “It was an inbound interest. We had never appointed a banker as I had no clue that PE funds would be interested in our business,” says Thakker. Since TPG had a good experience investing in a Chinese car dealership, China Grand Automotive Services, which went on to become the country’s largest car dealership, the fund was keen on a similar investment in India. Though it’s not clear what returns TPG made in China Grand after it sold the entire stake for $700 million in 2014 to an investor group led by Haitong International Securities, the India story has been much better.

After a part-sale of its 29.70% stake through Landmark’s IPO in December 2022 that fetched it 2.68x returns, the fund sold its last tranche of 11.25% in June 2023 for ₹293 crore, garnering a much-better 3.78x return at ₹658 a share. The fund, however, has retained a 26% stake in Landmark Insurance Ventures, following its initial investment in 2016. Despite scepticism around offer for sale and complete exits, the fact that esteemed investors Prashant Jain (3P Investment Managers), Sunil Singhania (Abakkus Asset Manager), and K. Sarath Reddy (Unifi Capital) acquiring the shares by TPG in June, is indicative enough that the best is not yet over for Landmark.

Savour this.

Passenger vehicle sales in India hit a record 4.10 million units in 2023, growing by 8% over the previous year, despite an increase in the average price of vehicles to ₹11.5 lakh against ₹10.58 lakh in 2022. In the case of Landmark, the average price of vehicle sold in Q3FY24 was ₹18.83 lakh even as its average revenue per vehicle service surged from ₹19,862 (December 2022) to ₹25,965 (December 2023), resulting in after-sales EBITDA of ₹116 crore.

Adding depth to the management, Thakker has also got onboard son Aryaman. With a master’s degree of science in marketing and strategy from the University of Warwick, Aryaman joined in 2017 as a general manager and is now the executive director, overseeing the digitisation strategy of the group with a 30-member team comprising data analysts, software developers, and business analysts. Interestingly, a chance encounter with Mike Jackson, the-then CEO of AutoNation, at Daimler’s international conference in Bordeaux in 2018, saw Jackson making an offer to son Aryaman to get some hands-on experience at AutoNation. “Jackson was quick to assess the potential for Landmark and was gracious enough to give some global exposure to my next-in-line successor. He told, “Sanjay, you are 20 years behind AutoNation, but I can see a good growth trajectory,” reveals Thakker. Though the exposure was short since Aryaman was on a J-1 Trainee Visa, he got to cut his teeth in what was relevant. The focus was to spend time with the management and the leadership at their headquarters to understand how they were operating at such a large scale. “I am keen on improving our processes, investments, data analytics for better customer lifecycle management,” says Aryaman. In an industry-first, Landmark has also hired a senior resource from Mahindra as its chief digital office.

Given that the company’s single biggest expense is employee costs at ₹160 crore of the total expenses of ₹309 crore in 9MFY24, it’s clear that a professional management structure does not come cheap. In other words, Landmark needs to keep building on its premium positioning to afford such a high-cost structure. Not surprising that it has secured dealerships with MG, and BYD, which has sold over 2,000 high-end electric cars in India over FY22 and FY23. “There are mass market brands engaged in a battle for market share and have dealers every 3-5 km radius. We are clear that we will be a meaningful player with a profitable business,” says Thakker.

While the company has entered adjacencies, including used-car business, it’s the growth in the new car and services business that will keep the engines revving. Analysts, for now, seem to love the after-sales service business since it lends comfort both in terms of revenue (20% CAGR over FY14-FY23) and profitability (18% EBITDA margins) with a high return on capital employed of 36% (9MFY24). Auto, however, being a cyclical business, it’s unlikely that Landmark, whose 9MFY24 revenue from operations have come off 4% year-on-year, won’t be immune to its fallout. But Thakker believes the road ahead is still a long one, a belief underscored by the 1977 Nike catchline emblazoned in his office, ‘There is no finish line.’ This ethos, according to Behl of Honda, is ingrained in Thakker’s DNA. “It’s been around for over a decade,” he says.

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